WB reportedly recommends Romania progressive taxation and cutting tax breaks

A report commissioned by the Government of Romania to a team of World Bank experts, financed under the Resilience Facility (PNRR) for the Ministry of Finance and consulted by Economedia.ro and G4Media.ro, recommends the government a complete overhaul of the tax policy, including radical steps such as switching to the progressive taxation of employees and cutting the income tax exemption for employees in IT, construction and agriculture.

Such extreme steps are ruled out even by the Social Democrats – more for practical than ideological reasons.

The document drafted by WB experts also proposes to increase the tax on dividends to 10% (currently 8%, up from 5% until last year), to raise property taxes and to increase the taxation of micro-enterprises – which they claim distorts the economic environment.

At 26.3% of GDP (including social security contributions), Romania's tax revenues are in second place in the European Union (EU) queue.

Extended preferential tax regimes and extended exemptions for different categories of labour and micro-enterprises, preferential rates of value added tax (VAT) for a wide range of goods and services, together with a very low income tax rate of 10% (which was reduced from 16% in 2018), have reduced the tax base, introduced considerable distortions and negatively affected the fairness of the tax system – the experts explain.

Therefore, there exists significant potential to increase tax revenues through changes in tax policy while at the same time increasing both the efficiency and the fairness of the tax system, according to the report compiled by the World Bank for the Government of Romania.

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